Country Forecast Turkey September 2017 Updater

Country Forecast Turkey September 2017 Updater

  • September 2017 •
  • Report ID: 5115197 •
  • Format: PDF


  • The intense political instability that followed the failed coup in July 2016 has eased partially since the approval in a referendum in April 2017 of a set of constitutional changes designed to replace Turkey's parlia-mentary system of government with an executive presidency. The narrow referendum victory and allegations of vote fraud, however, have deepened social and political divisions.
  • The presidential reform, which is due to come into effect after the next presidential and parliamentary elections, in 2019, will further undermine Turkey's fragile democratic institutions and governance structures. It provides few checks on the powers of the president, and moves the country closer to one-man rule.
  • The Justice and Development Party (AKP) has enjoyed 15 years of single-party rule, and for most of that political and government effectiveness have improved. However, since 2013 economic policymaking institutions have become increasingly politicised. In response to the failed coup in 2016 the government has carried out an extensive purge of public-sector personnel, which risks undermining institutional capacity.
  • Since the failed coup Turkish foreign policy has been heavily conditioned by the domestic political goals of the incumbent president, Recep Tayyip Erdogan, notably his push to establish a presidential system of government. This has resulted in a marked deterioration in Turkey's relations with its Western allies.
  • Real GDP growth slowed from an annual average of 7.4% in 2010-15 to 3.3% in 2016, in part owing to the disruption to the economy from the failed coup but also because of faltering foreign capital inflows amid expectations of global liquidity tightening. A recovery got under way in the final quarter of 2016, supported by government stimulus measures, political pressure on banks to extend credit and a pick-up in global demand. The Economist Intelligence Unit expects growth to accelerate to 5.5% in 2017 and to an average of 4.5% in 2018-21.
  • Inflation is expected to average 10.6% in 2017 following a sharp depreciation of the lira due to the political turmoil in the country at the end of 2016. The lira will recover some ground in 2017-18 (on average), although we expect it to depre-ciate mildly against the US dollar in 2019-21. In response, we expect the Central Bank of Turkey to have to keep a tight monetary policy stance through 2018.
  • We expect the current account to widen moderately and remain sufficiently large to make it difficult for Turkey to meet its external financing needs if global liquidity is constrained and investor confidence deteriorates.


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